First Time Home Buyer $7,500 Tax Credit and How To Use It for Down Payment

First of all, it needs to be stressed that there are limitations and qualification for this program. The most stringent is that it is availalbe from homes purchased between April 9 of this year and July 1 of next year. If you miss that window, you miss the tax credit.

Next, the credit is only available to single taxpayers with an Adjusted Gross Income (AGI) of $75,000 or less or married taxpayers with a AGI or $150,000 or less to get the full credit. Lesser credits are available for those making more than the limits listed here.

Additionally, this is not a gift from the government. It is a tax credit that has to be paid back. It is in essence a interest-free loan. You are required to pay it back (with your taxes) at $500 per year starting with the tax return of the year after you receive the credit. So, if you take the credit for 2008, it starts being payable with your 2010 taxes. It is paid over a 15 year period. Also, if you sold the home in this time period and netted less than what was still owing, that amount would be forgiven.

Remember, politicians wrote this. That means it takes a lot to understand what they did. When working on the tax ramification, please seek advise from a tax professional on your personal situation. I am not a tax professional and do not intend to give any tax advice. I do believe you will find that your tax obligation as a home owner should more than generate deductions to pay for the $500. Again, this is my belief, not tax advice.

You also must not have had ownership in a primary residence for the past three years to qualify as a first time home buyer.

But, how do you use it for down payment? Good question.

1. Borrow from your 401k. I know that most people have an aversion to taking money from their 401k since that is their retirement nest egg. But, by using the 401k for the down payment, the money (again check with a tax professional) can be borrowed or even withdrawn and then paid back with no penalties.

2. Borrow the money from a commercial lending institution. You may belong to a credit union that would be more than happy to lend you the money in this instance. Use your car or boat or the like for security if necessary.

3. Get a gift from a relative. The money must be a gift with no expectation of being repaid. The giftor must sign a letter stating that it is a gift with no repayment. That being said, what you do with your $7,500 is your business.

4. Sell a kidney....no, I don't think that would be a really good idea. I don't think you can get that back. But, maybe you have a collection of baseball cards, or silver dollars you can use for security to get the down payment.

I keep saying it is $7,500, but in actuality, it is only 10% of the sales price of the home. So, if you found a home with a sale price less than $75,000, your credit would be less. Let me know if you find one of these, OK?

I hope this information helps you understand this particular portion of the Housing Act of 2008. There is so much more in the Act that will have effect on us down the road. This one is a good thing, I think.

Now, just one more thing. There are rumors and speculation that this money can be used for down payment and/or closing costs. That is not true. This is not money in hand. That means you cannot use it "CAUSE YOU AIN'T GOT IT YET!" Anytime you are working on a loan, one of the primary thing we do is verify and track the money. Where did it come from and how long has it been there?

Call me and let's discuss your options on purchasing a home before this incentive is gone. Rates are great. Prices are excellent. What are you waiting for?